Correlation Between Prime Meridian and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Prime Meridian and Dow Jones at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Prime Meridian and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prime Meridian Holding and Dow Jones Industrial, you can compare the effects of market volatilities on Prime Meridian and Dow Jones and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Prime Meridian with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Meridian and Dow Jones.
Diversification Opportunities for Prime Meridian and Dow Jones
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Prime and Dow is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Prime Meridian Holding and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and Prime Meridian is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Prime Meridian Holding are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Prime Meridian i.e., Prime Meridian and Dow Jones go up and down completely randomly.
Pair Corralation between Prime Meridian and Dow Jones
Given the investment horizon of 90 days Prime Meridian is expected to generate 1.01 times less return on investment than Dow Jones. In addition to that, Prime Meridian is 2.65 times more volatile than Dow Jones Industrial. It trades about 0.03 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.09 per unit of volatility. If you would invest 3,351,765 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 1,139,300 from holding Dow Jones Industrial or generate 33.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 86.82% |
| Values | Daily Returns |
Prime Meridian Holding vs. Dow Jones Industrial
Performance |
| Timeline |
Prime Meridian and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Prime Meridian Holding
Pair trading matchups for Prime Meridian
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Prime Meridian and Dow Jones
The main advantage of trading using opposite Prime Meridian and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prime Meridian position performs unexpectedly, Dow Jones can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Dow Jones will offset losses from the drop in Dow Jones' long position.| Prime Meridian vs. HUMANA INC | Prime Meridian vs. SCOR PK | Prime Meridian vs. Aquagold International | Prime Meridian vs. Thrivent High Yield |
| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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